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01 August 2019Keefer DouglasWilliam ChenYanyu He, Ph.D
Over the past decade, rapid unconventional oil and gas
development in the US resulted in significantly increased ethane
availability. Increased ethane rejection reduced ethane prices to
parity with natural gas, incentivizing a wave of investment in both
domestic consumption and exports. The US began exporting ethane via
pipeline to Nova Chemicals' Sarnia plants in Canada in early 2014.
The first waterborne cargo was loaded for Norway in March 2016, and
ethane began reaching Reliance Industries' facilities on the west
coast of India in late 2016. Other countries currently importing US
ethane include UK, Sweden, Mexico, and Brazil.
Some international buyers import US ethane to fill the void left
by dwindling domestic ethane supply. Others take advantage of the
lower cost of US ethane to diversify, making additional investments
to accommodate the more economical feedstock. Figure 1 breaks down
the ethane imported by each company in 2018, along with the capital
spent on related projects.
INEOS owns two gas crackers at Grangemouth, UK and Rafnes,
Norway. Feedstock for these facilities traditionally relied on
North Sea production. Declining ethane production in the UK caused
INEOS to close the Grangemouth cracker in 2008. Production in
Norway has been more stable. To capitalize on its early-mover
status in securing US ethane, however, INEOS decided to expand
capacity by investing in a new furnace at Rafnes. With eight
dragon-class ships, the INEOS fleet acts as a virtual pipeline to
bring US ethane to Europe.
Borealis soon followed INEOS into the waterborne ethane trade.
Borealis still has an ethane supply contract with Equinor. Yet in
2017 when the company saw an opportunity to secure feedstock long
term for its Stenungsund, Sweden cracker, Borealis started
importing from the US. In 2018, this flexible gas cracker imported
450,000 tons of ethane, higher than the annual average of 350,000
tons per year used during the prior five years.
In order to enhance its competitiveness, Reliance revamped its
existing ethylene crackers at Nagothane, Hazira, and Dahej to
increase capacity. It also built a 480-kilometer pipeline
connecting the facilities. And Reliance set up an even larger
virtual pipeline than INEOS, commissioning the world's first very
large ethane carrier (VLEC) fleet to supply US ethane to its
crackers. The sourcing of ethane at these facilities plus
integration with Reliance's Jamnagar refinery provides the company
with feedstock security as well as optionality in feedstock
usage.
Similar arrangements were made by several other international
chemical firms. Brazilian petrochemical player Braskem signed a
10-year contract with Enterprise Products Partners and started
lifting ethane in 2017. Underpinning the plan is a US$105 million
upgrade project at its cracker in Camaçari, Bahia to use the
ethane. Improvements will also be made to allow the Port of Aratu
and the connecting pipeline to receive ethane. In addition, SABIC
upgraded its Olefins 6 plant at North Tees and added ethane
offloading and storage facilities at the port.
Anticipated interest in importing US ethane
The countries currently importing US ethane are not alone in
their interest. In our view, there are three types of players that
might consider importing US ethane:
Those currently cracking domestically produced ethane, thus
having potential to diversify supply or crack more ethane
Non-ethane crackers that could potentially be re-configured to
use ethane as a feedstock
Countries that are short in ethylene and willing to invest in
greenfield projects to use ethane as a new feedstock
Looking beyond existing importers, more than a dozen other
countries also use ethane as part of their ethylene feedstock. A
number of these countries are located in the Middle East and
Commonwealth of Independent States regions, where vast local oil
and gas resources typically limit the need for US imports.
Some other countries with ethane access could consider US
ethane, however - either for supply diversity or to crack more
ethane due to favorable economics. For example, declining ethane
supply in Europe could eventually lead to expansion of US imports
there. Both Borealis in Sweden and TOTAL in Belgium currently have
contracts with Equinor to provide ethane feedstock, but US ethane
might find its way into Belgium as Norwegian oil and gas production
matures. In Asia, Thailand and Malaysia currently use ethane from
domestically produced natural gas. However, declining domestic gas
production may cause both countries to reconsider their
options.
If US ethane remains competitive against naphtha, we could
expect additional companies to upgrade to allow ethane cracking.
This opportunity is mostly relevant to crackers located in coastal
areas, which allow easy access to waterborne ethane. For example,
Repsol at Tarragona, Spain has increased its use of lighter feeds
(propane and butane so far), but the company could be enticed by
plentiful lower-cost ethane. Versalis in Italy might be a candidate
for retrofitting its own traditionally naphtha-based coastal
crackers. As South Korea actively optimizes its crackers, which are
largely based on naphtha feedstock, ethane could become another
option.
For greenfield crackers that use US ethane, China has the
largest potential. The first of such projects will be SP Chemical's
new ethane/propane (E/P) cracker in Taixing, China, which is
expected to be in service by Q4 2019.
Building an ethane cracker in China offers many benefits. Based
on IHS Markit estimates, a Chinese ethane cracker requires about
$1,000 of total fixed investment (TFI) per metric ton of ethylene,
which is much lower than coal-to-olefins (CTO) or naphtha- based
ethylene plants and propane dehydrogenation (PDH) projects (see
Figure 2). Ethane crackers also have the highest ethylene yields.
In China, ethylene self-sufficiency is still low, while propylene
self-sufficiency is much higher. A higher ethylene self-sufficiency
would be economically and operationally beneficial to balance
ethylene and propylene market fundamentals and requirements.
However, China is not the only place where greenfield ethane
crackers are being considered. INEOS is planning an ethane cracker
in Antwerp, Belgium to go with its greenfield PDH plant at the same
site. This investment is at least in part underpinned by INEOS'
unique position: the ability to access large volumes of US ethane
while still being Europe's largest net buyer of ethylene, which
helps it feed its polyethylene and other derivatives businesses.
Few other European players are likely to be in a position to add
greenfield capacity, but there are likely markets in other regions
where a new cracker could make sense.
Posted 01 August 2019 by Keefer Douglas, Director, Midstream Oil and NGLs Research and Consulting, IHS Markit and
William Chen, Director, IHS Markit and
Yanyu He, Executive Director, Natural Gas Liquids (NGL) Research and Consulting, S&P Global Commodity Insights